Korean funds mull $260 mn mezzanine financing for Brookfield’s IFC Seoul purchase

  • 2016-11-03

Brookfield Asset Management is in talks with the Korean Teachers’ Credit Union (KTCU) and a state-run mortgage lender to secure 300 billion won ($261 million) in mezzanine debt for its 2.5 trillion won ($2.2 billion) acquisition of IFC Seoul.

Brookfield, which was named as the preferred buyer of the landmark building complex in Seoul earlier this year, recently signed a sales and purchase agreement (SPA) with the AIG Group, the owner of the property, according to investment banking sources on Nov. 1. Brookfield is now in the process of fundraising for its first office building purchase in South Korea, with an aim to close the deal by year’s end.

Under the agreement, Brookfield will buy an equity stake worth 520 billion won in the International Finance Center complex consisting of IFC Mall, Conrad Seoul Hotel and three office buildings. Ten financial services companies in South Korea, including Kookmin Bank, Samsung Life Insurance Co. Ltd. and NH Life Insurance Co. Ltd. are set to provide a combined 1.6 trillion won in senior loans for the transaction.

For the largest single property deal in the country, Brookfield and AIG will establish separate special purpose companies (SPCs). After Brookfield’s SPC pays off debt owed by AIG’s SPC, the two SPCs will be merged, online news outlet edaily reported. Brookfield will initially put in its own capital of 900 billion won for the acquisition, and later raise about 300 billion won in mezzanine debt, according to the media report. The return from mezzanine debt to be issued for the transaction is projected at the upper end of the 5% range, compared with the lower end of the 3% range for senior loans of 1.6 trillion won.

Meanwhile, sources told the Korea Economic Daily that Brookfield has yet to determine whether to secure mezzanine debt from outside investors such as the KTCU and the mortgage lender under South Korea’s land ministry, or use its own capital for 300 billion won mezzanine financing.

One of the sources involved in the deal said that the final sale price could top 2.5 trillion won, depending on the foreign exchange rate at the time of payment and the results of discussion for mezzanine loans, adding that the transaction will be made in dollars.

IFC Seoul complex in Yeouido, central Seoul, has a floor area of 505,236 square meters. It was jointly developed by the Seoul metropolitan city government and the AIG Group from 2006 to create a financial hub for northeast Asia. AIG is entitled to selling the complex after 10 years of its ownership.

Office buildings in Seoul have been producing steady rental incomes of 4~5% a year, despite a higher vacancy rate on the back of rising new builds, HI Investment & Securities said in a recent report. Of three office buildings of IFC Seoul, Tower 3 has a 70% vacancy rate.

By Daehun Kim

daepun@hankyung.com

<Edited by Yeonhee Kim>